Moody’s Downgrade of the Borough’s Borrowing Status
The terrible headlines that announce our Borough’s financial demise are wrong. Moody’s recent downgrade comes on the heel of rating agencies downgrade of the State of New Jersey and the United States of America and are partly caused by a tightening of criticisms of the rating agencies and, in our case, is caused by inaccurate and misleading information.
But before addressing the inaccuracies, let me assure you we take this very seriously. We continue to work vigilantly to reverse it and to maintain our financial stability. We are NOT concerned that we are in any financial trouble any more than every other town trying to survive in these times.
Let’s talk about the issues we have with Moody’s report. Moody’s first cites to the upcoming October 6 deadline on our construction loan and that, today, we do not have the money to pay the @ $4.4 million due. They are technically correct.
But they ignore that we have agreement with the banks for a 60 day extension, to December 7, to give us the time to finally adopt the Bond Ordinance we introduced on September 6 that will provide us the money to pay the amount due. The extension has been agreed to by the banks but is not yet in writing. Moody’s knows all of this and ignored it. This is the exact same process we went through last Spring when we extended the construction loan. Absolutely nothing is different.
When we borrow this money, we will pay our debt service with money received from rentals of those units. We do not anticipate there will be any effect on our budget because the borrowing costs will be offset by the rental income. We will need to rent 7 units to cover the debt service. We are signing the first lease purchase agreement tomorrow, 10 days after announcing the program.
Moody’s cites to the fact that our surplus was @ 42% of our budget in 2007 but has now declined to 7%. And that this is a bad thing. The inference is we used surplus to pay our operating expenses. In fact, the surplus was so high in 2007 because of the $4 million profit we generated from the Parkview redevelopment and then distributed to property owners through the PRIDE grant ($150 per year for 4 years). But the Moody’s report depicts this as a negative because our surplus declined precipitously.
Moody’s cites to our declining population since 1999. Some of you may remember the State put us on a “distressed” cities list for the same reason. (After we were put on the list, and we raised the roof, the State stopped the list.) Of course, during that time we have had a duplex conversion program that has reduced the number of household units by more than 200 units. We’ve been working over that time to REDUCE the population; we don’t view this as a bad thing.
There are a number of other issues that could be addressed, but as I said at the beginning of this, this is a serious matter that we have to deal with. We are working diligently to reverse it and to minimize any impact in the meantime.
Collingswood is a successful town because we’ve always kept looking for new ways to grow. If we aren’t moving forward, we fall backward and this is a long term project that will pay us back for years. It’s certainly tougher to manage given the current economy, but we are rolling with the punches, protecting the taxpayer budget, in what will be a boon to our town. If you ever have any questions or comments, please do not hesitate to contact me.